Cross-Border Processing: The Industrialisation of Corporate Banking
Celent estimates that banks can achieve an approximately 16% reduction of total non-interest operational expense by moving business lines to an integrated platform with a processing center in a low-cost offshore location.
The international expansion of financial institutions has created an IT architecture, operations, and risk management nightmare. As a result, banks are not enjoying the economies of scale that should be achievable, given the size of their activities. Moving to a cross-border processing center will help address these issues and cut costs, according to the new Celent report, .
"Increasingly, we are observing banks trying to break down these national silos and move to cross-border processing by consolidating their operations and technologies and delivering their services through centres designed to support clients around the world," says Axel Pierron, analyst and co-author of the report.
"In terms of the potential cost savings, we estimate that a reduction of over 15% of total non-interest expense is achievable by moving to a cross-border processing centre model in a low-cost, offshore location. Economies of scale through centralisation account for about one-third of these savings, with the cost advantages of the offshore location accounting for over 60% of the savings," adds Octavio Marenzi, CEO of Celent and co-author of the report.
"In certain business lines, especially for some corporate products, banks that wish to remain global players and distribute proprietary services will eventually implement a cross-border processing strategy. Achieving a full-fledged industrial approach to creating banking services will be essential for banks to remain competitive and profitable," comments Mr. Pierron.
But pulling together disparate systems and streamlining duplicate applications are risky, costly endeavours. Furthermore, enabling the entire system for real time operations is beyond the capabilities of most computing platforms. What is needed is an approach that tackles the reality of today's disjointed wholesale banking systems.
"The biggest challenge is the typical tradeoff between centralised and localised control," says Bart Narter, senior analyst and co-author of the report. "Local banks will always want a system that works just right for them, optimising the solution for their branch or country. The bank as a whole wants to optimise for the entire institution. Friction remains. One of the most instructive instances of this tension is the Citibank Cosmos project."
The report examines the drivers that are encouraging international banks to develop cross-border processing centres. It also provides a detailed analysis on the instruments that are the most suited for cross-border processing, as well as the advantages, such as expected cost savings, and challenges of implementing a cross-border processing strategy.
The 29-page report contains 15 figures and 1 table.
A table of contents is available online.